E-Processor CyberSource Now Offers Software Too

CyberSource Corp., which provides e-commerce transaction services to big customers including Amazon.com, now also sells Internet payment software to use in-house.

The software comes from four-year-old Paylinx Corp. of St. Louis, which CyberSource bought last week for $95 million in stock.

CyberSource, of Mountain View, Calif., has emerged as a leading provider of Internet payment processing by targeting large online retailers. It offers a range of related services, including fraud prevention, tax calculation, risk management, and fulfillment management.

But most big retailers want to run their software applications in-house, according to a survey.

"We had some customers say, 'We really want to access to your services, but some pieces, like payments, we want to run internally,' " said Evan Ellis, CyberSource's president and chief operating officer. "Now we can do both outsourcing and a software solution, or a blended solution."

A GartnerGroup survey completed in July showed only 19% of 166 large merchants outsourcing their payment processing. Forty-seven percent had built their own processing systems, and 16% had bought systems.

"Sixty-three percent of the merchants want to run their own payment system," said Avivah Litan, research director of payment services at GartnerGroup. "CyberSource didn't have a solution for companies wanting to run their own server until they bought Paylinx."

CyberSource's second-quarter revenue of $7.1 million was up 179% from a year earlier, but its net loss, $10.5 million, rose by only about half. Its stock closed Friday at $12.62, up 13% from $11.13 the week before.

To acquire Paylinx, CyberSource issued approximately 8.8 million shares of common stock. The company will take a one-time acquisition-related charge of $14.5 million in the third quarter.

Carol Baroudi, director of electronic business strategies at Hurwitz Consulting Group, called CyberSource's approach revolutionary. "It's very cool, because you can mix and match outsource and insourcing solutions," she said. "Nobody else out there is doing that."

Ms. Litan concurred, saying that CyberSource "has a very wide range of services, wider than any of their competitors."

CyberSource has processed more transactions than its competitors despite having fewer customers, according to GartnerGroup - 34.7 million in the second quarter, from about 2,200 customers. CyberCash Inc. was second, with 23.4 million transactions from 25,100 customers. Verisign Inc. of Mountain View, Calif., had 16.6 million transactions, from 7,800 customers.

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